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The financial markets around the world over the past 12 months have moved sharply higher. Prices have risen to such heights that many have been calling for a reversal for several months now. However, based on the charts below, the story actually seems as though prices could be poised to move higher. We’ll discuss how active traders will most likely be positioning themselves to take advantage of the move.
SPDR S&P 500 ETF (SPY)
As discussed above, the financial markets have turned in a strong performance so far over the past several months. Taking a look at the chart of the SPDR S&P 500 ETF (SPY), it is clear that the bulls are in control of the trend and the underlying momentum. The ascending channel pattern has laid out clear buy and sell points for those who follow technical analysis.
The rise above the upper trendline in late 2019 was an indication that the bulls are increasing their conviction and that the next leg of the uptrend could just be getting started. Recent selling pressure and the subsequent bounce off of the combined support of the dotted trendline and the 50-day moving average could be used as confirmation of a major move higher. From a risk-management perspective, stop-loss orders will most likely be placed below $320.69 or $298.97, depending on risk tolerance and investment horizon.
iShares Russell 2000 ETF (IWM)
As a broader view of the U.S. market, many active traders turn to analyzing the chart of the iShares Russell 2000 ETF (IWM). The sideways channel pattern shown below suggests that the broader market may have faced a bit more resistance than SPY, but the recent crossover between the 50-day and 200-day moving average suggests that the bulls now believe in a move higher.
As suggested above, the recent retracement toward the support of the 50-day moving average and nearby trendline could be presenting active traders with an interesting buying opportunity. Stop-loss orders will most likely be placed below $164.06 or $155.23 in case of a shift in underlying fundamentals and based on the individual trader’s risk tolerance.
Vanguard Total Stock Market ETF (VTI)
While the case for segments of the U.S. market to head higher seem strong, traders may also want to consider broadening their perspectives by considering the whole market as represented by the Vanguard Total Stock Market ETF (VTI). Taking a look at the chart below, you can see that the price has been trading within an ascending channel pattern since June 2019, and the recent break above the upper trendline suggests that the bulls are in clear control of the momentum.
The recent bounce off of the support near $163 suggests that prices are likely poised to move higher. With that said, traders will most likely place stops below the swing low to protect against a more pronounced move toward the 200-day moving average, which is currently trading near $152.39.
The Bottom Line
Many retail investors are calling for major trend reversals based on recent market gains, but charts of key market exchange-traded funds (ETFs) such as those mentioned above suggest that the trend could very well continue higher from current levels. The placement of stop-loss orders will likely prove to increase in importance over the coming months as the next leg of uptrend tries to establish itself.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.
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